Former Federal Reserve governor William Ford joins Larry Kudlow to discuss the Federal Reserve and the possibility that the central bank, essentially of the entire world, may be just one step away from being technically bankrupt.

The Fed holds trillions of dollars in assets, but those assets carry interest rate risk, credit risk, and of course, the (likely) possibility that they have been overvalued by Federal Reserve accountants, which means when they go to sell these on the open market they will be revalued at a significant loss compared to the bank’s current mark-to-model valuations.

A lot of things can go wrong with the Fed’s current strategy, which begs the question: What happens when the world reserve currency’s central bank goes bankrupt?

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If interest rates rise by 1% on $1 trillion long-term bonds, you lose $150 billion in value and the capital value on their balance sheet last Thursday was a little over $50 billion, so they could be technically bankrupt.

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They do their bookkeeping using a non-GAP method of bookkeeping…If you read their annual report of the 12 banks, their outside accounts says they use an accounting system – and this is a direct quote – unlike any other in the United States of America. I mean, what else do you need to know. they need to go to GAP accounting to report their earnings honestly.

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They’re leveraging themselves like crazy.

Video Interview with William Ford:

Who do we call for a bailout if and when the Fed goes broke?

Hat tip Market Ticker, Tom of the North